BNY Mellon Takes the Next Step in Its FX Build-Out

Key to the announcement made today by BNY Mellon that it is launching an FX options desk is that the bank believes that this represents the next step in its transition to a “full-service” FX franchise.

“We’re transitioning from a custody FX business to a more traditional full-service FX provider,” Adam Vos, global head of FX at BNY Mellon Markets, tells Profit & Loss. “As such, FX options was a key deliverable along this journey because it means that we can now meet more of our client’s trading and hedging demands. It’s very important that they no longer have to go somewhere else for this activity, they can trade options – as well as other products – directly with us.”

Of course, another important deliverable in the continued evolution of BNY Mellon’s FX business is the prime brokerage (PB) service that the bank announced plans to launch in January of this year. Vos claims that this launch is going well, although he is light on specific details, stating simply that a number of clients are “in the process” of going live on the service following strong customer demand.

In terms of the next steps in this ongoing transition, Vos will only divulge that BNY Mellon plans to make further announcements regarding both the PB and the e-trading sides of the FX business before the end of the year.

Instead, discussing the longer-term goals of the FX build-out taking place at the bank, Vos comments: “The way to look at this is holistically, in terms at what we offer as an organisation: custody plus our markets group. If you start to tie in the custody and asset servicing business together with things like execution, Liquidity Direct and collateral management, it becomes a very powerful solution set for clients that others can’t offer.

He adds: “It’s about a lot more than execution: it’s about the end-to-end operation and client experience where it’s seamless and connected for clients across these various business lines. That experience becomes the real differentiating factor beyond pure price and product offering.”

But even building out different product offerings comes with a variety of challenges of service providers. Vos explains that building out a business like FX options within a bank is no different to building a business outside of one in the sense that there is a vast amount of moving parts that need to be put in place.

He says: “One of the most important components is ensuring you have the right people in place, which is why we’re really pleased to have Sam Osterman leading the FX options business, in addition to Ken Liu, who joined the options team in March. Technology is another key component. Making sure that we have the right technology in place to price and risk manage the business is crucial, so that we can provide an excellent level of service to our clients and ultimately continue to develop products that meet their needs. The third component is getting the governance right. A huge amount of work has gone into the design and implementation to get this service live and to a point where we feel comfortable going out to clients and announcing that we’re ready to trade.”

Vos concludes: “Finally, the last component is client activity, and that’s starting to grow now. Clients across the real money and hedge fund space are currently transacting with us and we expect this to pick up further.”

BNY Mellon is initially only going to be offering FX options trading to its clients in the Americas. The plan is to roll this product line out to clients in Europe and Asia, although the bank declines to provide a specific timeline beyond stating that it will be in the coming months after this initial launch.